Is it better to Save Money for a House Down Payment or to Pay Down Student Loan Debt?

As people begin to finish college and start careers they quickly realize that they have to make more important choices than ever before. No one makes all of the right choices every time, but you probably want to do your best to make wise choices that will help you to achieve your goals. One of the big choices you may face – one that some older generations never even had to think about – is whether to pay down your student loan debt or to focus your money saving efforts on putting money away for a big down payment on a home. Student loan debt has skyrocketed in recent years, and some young people find themselves with tens of thousands of dollars in educational debt. But these same people still want to get started with their lives, and for many of them that means purchasing their first homes.

Like any other choice that you make in life, it is best to consider a few things before you make your decision. In a perfect world, you would be able to do both. But unless you started making a ton of money right out of school, you will likely have to choose to make one more of a priority than the other. Here are some questions you should ponder while choosing the right path to take…

How much student loan debt do you have? Obviously, the more debt you have the higher your monthly payments will be. If you have to pay out hundreds of dollars every month, that is obviously cash that won’t be able to go toward your monthly mortgage payments or savings for a down payment. Before you even qualify for a mortgage, you need to weigh your current financial obligations to see how much house you can afford. As a general rule, if your student loan debt (and other consumer debt, like credit card payments) is more than 15 percent of your take home income, you should probably pay the loans off before you start socking money away for your down payment or shopping around for a mortgage.

How much interest do you pay on your loans? Right now, most student loans are on the lower end of the interest rate spectrum. However, this varies from one person to another. If you are paying interest of more than 6 to 8 percent, you should either refinance the loans to get a better interest rate, or pay off the loans before house hunting season begins for you.

How is the real estate market looking in the area you want to live in? It is a good time to purchase a home right now, but that doesn’t mean the market is great in the neighborhoods that you want to live in. If the market is great in the area where you want to move to – i.e. homes are increasing in value at a rate that is even higher than the interest rates on your loan – you may want to start saving money up and get yourself moved into that dream home of yours sooner rather than later. You may have to be aggressive, and cut some of your other discretionary spending for a while, but if the market is right, and you are set on that area, it may be a good time to make your move.

Saving money and staying out of debt are both valuable life skills that you need to perfect. Whether the time is right to save money for your home or to continue paying off student loan debts, both paths are leading you toward becoming more financially responsible and secure in the future.